Utilities target marketplace for customer interaction, energy savings

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You can buy pretty much anything online, from groceries and clothes to cars and real estate. Why not energy services? Utilities are trying to get in on this idea while searching for ways to connect with customers.

Hypothetically, a customer could purchase a water heater, redeem a rebate and enroll the appliance in a demand management program, all without leaving the utility's web site. While fully integrated models like this example are being developed, utility marketplaces with a range of offerings are now helping to engage customers and grow energy savings.

As of December, there were 60 million customers with access to a utility marketplace, though the functionality varies between markets, according to Fei Wang, senior grid edge analyst at GTM Research.

Setups can be simple, such as a website that sells light bubs, or more elaborate like a single sign-on marketplace, allowing customers to log on using the utility interface, Wang told Utility Dive.

"There is a pretty wide range of sophistication, and most right now fall on the more simple side of the story," she said.

But that is likely to change, and quickly. There are legislative and policy-driven initiatives behind some utility efforts, said Wang.

In California, state regulators have required investor-owned utilities to develop marketplaces. And in New York's Reforming the Energy Vision, utilities suggested digital marketplaces as a way to boost customer engagement and energy efficiency. Some say marketplaces could ultimately provide additional revenue streams. The long-term outlook will depend on the customer experience.

"There are not a lot of hard studies out there yet, particularly looking at long-term persistence," Navigant analyst Brett Feldman said via email. "In theory, marketplaces could be a cost-effective channel for [energy efficiency] assuming that the mass market beyond the early adopters will use a utility marketplace instead of just shopping on Amazon like they are used to."

A comprehensive cost-effectiveness study is still needed, RIA conceded, but initial figures appear impressive. The report concluded PG&E's Marketplace achieved electricity savings at a cost of between $0.004/kWh and $0.011/kWh. Perhaps even more important are the intangibles.

"This study also shows that almost two-thirds (64%) of the website users reported being satisfied with the site and almost half of the respondents (46%) reported having a more favorable view of PG&E after using the website," the report found.

Energy savings

The study looked at an initial three-year emerging technology trial period, from March 2015 through December 2017 and estimated the energy savings.

RIA's analysis concluded that to-date, PG&E's Marketplace has resulted in between 15,304 MWh and 41,901 MWh of gross electricity savings — and gross lifetime savings could be as much as 434,619 MWh. Those energy savings, along with more on the natural gas side, were delivered at a cost of less than $2 million.

"While these figures represent cost-effective savings, they are rough calculations and more research is needed to confirm the estimated savings."

Ari Vanrenen

Spokesman, PG&E

Officials at the utility acknowledged the findings with cautious optimism.

"While these figures represent cost-effective savings, they are rough calculations and more research is needed to confirm the estimated savings," PG&E Spokesman Ari Vanrenen said in an email.

RIA's analysis certainly makes this clear, also. "A comprehensive cost-effectiveness assessment needs to be conducted to determine the efficacy of delivering energy savings through Marketplace," the report says. "A comprehensive cost-effectiveness assessment was beyond the scope of this study."

PG&E's marketplace is powered by Enervee, and in a blog post the company was more effusive.

Enervee said the report shows that its marketplace "delivers large energy savings with dramatic improvements in cost-effectiveness" and that the savings "were achieved without providing any financial incentives, resulting in cost savings of roughly 10X for electricity and 40X for natural gas."

Anne Arquit Niederberger, vice president of market development at Enervee, wrote that the PG&E market is "highly cost-effective, because it relies on market transformation and behavioral nudging strategies, which expands the scope of plug load & appliance categories that can be addressed and eliminates the need to provide product rebates, as well as related rebate processing costs."

Customer connection

While Wang says 60 million utility customers have access to a marketplace, it is still a relatively small number that uses them.

"Energy savings is a big driver for utilities to adopt these," said Wang. "In time they do want to see if that's a new way to engage customers ... but right now it still targets a small portion of customers, though potentially they could reach all residential customers. But not a lot of people are using it at this point."

RIA's research, through an analysis of IP addresses, concluded 10% of PG&E's customers' have visited the marketplace.

"That's definitely a good penetration rate for a utility initiative," said Wang.

Vanrenen said the goal with the Marketplace is "to reach customers during the research phase of their purchase journey in order to include energy efficiency in the decision-making process," adding that the utility "continues to drives customers to the PG&E Marketplace through marketing channels."

Utilities can also use the offerings to increase customer satisfaction, said Navigant's Feldman, by "directing people with high bill complaints to the marketplace." The biggest utility benefits, he said, are to reduce transaction costs, "meet the purchasing channels of younger customers," and increase customer engagement and satisfaction.

Patent Pending Process

The largest provider of utility-branded marketplaces is Simple Energy, which dominates the space outside of California. The company has a patent-pending process where customer enrollment in demand response programs is fully integrated with the purchase of a new thermostat, resulting in skyrocketing engagement rates.

According to Simple Energy CEO Yoav Lurie, utilities using the system have seen demand response enrollment rise significantly. And going forward, as customers reduce their load, Lurie believes demand response and load management programs will be more important than energy efficiency.

"When I think about the future of energy and energy markets, demand response and load shifting is going to become more critical than energy efficiency alone," Lurie told Utility Dive. "The hardest thing about demand response is getting customers enrolled." Simple Energy's patent-pending system is driving a 10X increase in demand response program enrollment.

Simple Energy's model is widespread outside of California, where utilities have more latitude in services and products they can offer. Enervee's model, popular with IOUs in California, works as a kind of directory of energy efficient products, so customers can make a purchase from a retailer; on Simple Energy's integrated platform, the transaction takes place on the utility-branded site.

Simple Energy recently launched marketplaces with Dayton Power and Light, Indianapolis Power & Light and Columbia Gas of Ohio to use its marketplace platform, and in total has more than 50 utilities signed on.

"Before marketplace, although most utilities were achieving their efficiency goals, they were doing so in a way that was not helpful to the broader customer relationship they're trying to build."

Yoav Lurie

CEO and Founder, Simple Energy

The company's system has moved the device rebate and even first-year demand response program incentives into the transaction process. When customers order a smart thermostat through one of the company's marketplaces, what appears as one transaction is actually multiple processes occurring in the background: a customer purchase, a check to see what programs they are eligible for, the application of the rebate and the thermostat enrollment into the program.

"It's all about customer engagement. That's the driver," said Lurie. "Before marketplace, although most utilities were achieving their efficiency goals, they were doing so in a way that was not helpful to the broader customer relationship they're trying to build."

Ultimately, it's that improved customer relationship that could drive higher earnings — not the actual products sold through utility marketplaces.

"Revenue generally is not really a concern," said Wang. Products in utility marketplaces "are still on the lower-margin side," she said.

That could change, Feldman believes, as the markets grow more sophisticated and include more services and partnerships. He sees potential in "revenue opportunities from advertising and referral fees" to retailers or equipment manufacturers, and the possible expansion into other products and services like solar, electric vehicles and energy storage.

However, at least for now, the main benefit of utility marketplaces will be in the improved — and changed — relationship with the customer, Lurie said.

"New earnings opportunities are enabled when you have a different kind of customer relationship," said Lurie. "Now customers are used to buying services and products from the utility." That can open up new offerings from EV rates to solar panels, but "the marketplace is the first step toward developing a different kind of relationship."